Tag:Turner
Posted on: April 15, 2011 4:55 pm
Edited on: April 15, 2011 6:35 pm
 

Why conferences are making insane jack from TV

Through an epic financial collapse, through historic scandals, despite the confounding BCS, college sports have prospered in this age.

Television and the accompanying platforms -- phones, internet and cable -- have followed along. 

Wednesday's announcement that the Big 12 was the latest conference to hit the rights fees jackpot raised the question again. Why? Why are media companies in these tough times willing and able to pay out the wazoo for properties that, in this case, include outposts in Ames, Iowa; Waco, Texas and Manhattan, Kan.

What I'll try to do here is explain why we are witnessing an unprecedented growth in right fees -- and subsequently college revenue. The growth outstrips even that of the nation's highest paying coaches. For example, if Nick Saban had enjoyed a raise parallel to the Big 12's windfall, his salary would have jumped from $4 million to near $16 million per year.

So why is this happening? One industry analyst summed it up this way: "There is a value to limiting uncertainty." Sports have become one of the safest and highest-grossing buys for media companies. There are no coked-up, petulant stars to deal with. Well, at least not a lot of them. The only "winning" is done on the field. Sports are somewhat cheap to produce.  Sports are true reality television, almost immune to being DVRed. Advertisers love that. There is a built-in following whose interest doesn't wane with time. Even the strongest TV series are cancelled. Try taking Alabama-Auburn off the air.

Since the advent of TV, sports have become the foundation of the medium -- largely immune to viewer trends or changing mores. College sports, in the last 25 years, have taken it to a new level.

"I think we're all making a bet on the future where we believe that college sports and sports in general is one of the leading lights generating large audiences," said Randy Freer, Fox Sports Networks president.


The biggest reason for these increases is competition. Simple supply and demand. There aren't many college sports properties available in coming years. Until 2013, it's basically the Pac-12 and NHL rights that are going to be available on the market. Newbies such as NBCUniversal and Turner are showing a willingness to get into sports in a big way.

That's why the Big 12 hit it big on Wednesday. That's why the Pac-12 could hit it even bigger next year (See below).


The SEC and Big Ten have set the bar, for now. Those conferences' schools each earn approximately $22 million per year, give or take. The SEC finalized a 15-year, $3 billion deal with ESPN and CBS a couple of years ago. The Big Ten is in the middle of a 20-year deal, partnering with News Corp. (parent of Fox) to produce the Big Ten Network in a deal that could be worth $2.8 billion. That's without mentioning the Big Ten's primary deal with ABC/ESPN. Seeing what the Big Ten had done with its network, ESPN moved to get the SEC using its multiple platforms as the equivalent to a "network." 

CBS has the SEC's over-the-air rights.

The Big Ten and SEC have the most rabid following and/or are in the biggest markets. But in the last year, even the ACC doubled its annual rights fees to $155 million per year in a new deal with ESPN for the next 12 years. Because the ACC has become a diminished league in both main sports (football and basketball) since expansion, there was natural wonder why ESPN would pony up so much cash. It is essentially paying for Florida State and Miami on the come -- both have slumped since expansion -- and a couple of North Carolina-Duke basketball games every season.

Once again: supply and demand. Fox finished a close second and had all that money available for the Big 12. 

The league got a 350 percent increase for its secondary rights with Fox (an average of $90 million annually). That's after losing Nebraska and Colorado in last year's conference realignment. 

This is where it gets complicated. Pac-10 commissioner Larry Scott was the wild card almost convincing Texas and five other Big 12 schools to join his league last year. When it became clear that Scott was serious, Fox and ESPN stepped in to make financial promises. Fox delivered what you saw happen this week, but at the time that's all it was -- a promise. ESPN did not alter its existing contract, despite the loss of the two schools, as a show of good faith.

In the end, Fox and ESPN had to make those promises. Neither could afford for the Big 12 to go away. That would have eliminated one BCS conference that accounts for 16 percent of the households in the middle of the country. With the Pac-10 going out to bid on its latest rights fees -- which it officially did on April 1 -- there was a chance that both ESPN and Fox would have been shut out of two BCS leagues.

That's a lot inventory (games) and advertising that would have disappeared into the ether. Desperation had literally set in. Cable giant Comcast, which recently bought NBC, was taking over the Rockets and Astros telecasts in Houston. Fox had to have a presence in Texas. Houston is the largest market in the state and a top five or six market in the country. 

Big 12 commissioner Dan Beebe got a lot of credit this week for "saving" the Big 12 that almost fallen apart 10 months ago. What's more likely is that Beebe happened to be the man in charge when these market forces collided. He gets credit for guiding the ship through choppy waters, but the ship was going to sail on after Texas re-committed to the Big 12 no matter who was in charge.

In short: Texas knew how the episode was going to end before it started. Yes, the school is that flush with cash, power and influence. It came through a rocky period with more money, a leaner, meaner conference and its own network (Longhorn Network). 

"Obviously, Fox decided [they'd] rather have a piece of both these leagues than leave one die," said an industry analyst.

The latest round of conference realignment proved that it's less about what league you're in and more about who's your television partner. Utah happened to be in the right place and the right time when Scott's power play failed. It then received a life-changing invite from the Pac-10. The Big East was suddenly willing to fly halfway across the country to invite TCU. Its teams begin flying halfway across the country to play games against the Horned Frogs in 2012.

Did Fox overpay for the Big 12? It's likely. But it wouldn't be the first time for a rightsholder. Part of eliminating that uncertainty sometimes is paying more for something than it is worth. The length of the deals keeps leagues out of the market for long periods of time. And what most analyses haven't included is that virtually all these deals are backloaded. While Big 12 schools will receive an average of $9 million per year from Fox, a large portion of that money will be owed toward the end of the 13-year deal.

That's the reason you saw CBS have to reach out to Turner to share the rights for the NCAA tournament beginning this year. Industry sources have indicated that the back end of the deal was getting too expensive. 

League rights fees are unique in that there are only a finite number of big-time conferences/leagues out there. The Big 12 deal was no doubt helped by the fact that the only other major conferences opening up in upcoming years are the Pac-12 (2012) and Big East (2013). There is already speculation that the Pac-12 may meet or surpass SEC/Big Ten numbers. The Wall Street Journal reported Friday that the league is seeking $220 million per year for its new deal. That's $18.3 million per year per school for you non-math majors. 

Colorado and Utah brought little value to the Pac-10 in the big picture. But expanding allowed the league to stage a conference championship game beginning this season. Fox paid $25 million in a one-year deal to telecast the first Pac-12 title game in 2011. That's $2.5 million per team that the conference never had. Scott also is reportedly determined to launch a conference network along the lines of the Big Ten. That would be more found money for the once-sleepy league. NBCUniversal, Fox and either ESPN or Turner (perhaps both) are said to be interested.

All this further explains what happened to the Big 12 and what is about to happen to the Pac-12. Texas and California are still  among the most valued television markets. The two leagues combined have Dallas, Houston, Los Angeles and San Francisco. That starts to explain why the leagues almost go together.


Other explanations:

College sports are undervalued: Delany began realizing that fact in the last decade. Even though ESPN was featuring his league, he felt there was more potential. The Big Ten has a large, passionate fan base (25 percent of the U.S. population). After a long, expensive fight, the Big Ten Network gained a foothold with cables systems. Salesmen literally had to go to from cable company to cable company to sell something that had never been tried before.

"We were on ESPN for 10 years but they weren't being very aggressive with us," Delany said more than a year ago when it was becoming evident that the BTN was turning the corner. 

Now network has become must-see viewing for those rabid Big Ten fans find who find the league's second- and third-level football and basketball games. Its original programming is slick and engaging. Now the Big 12 and Pac-12 want to follow in Delany's network footsteps. 



Pay TV is blowing up: Those high cable bills you pay? Thank what are called "sub fees" -- subscription fees for cable networks. ESPN is at the top of the heap getting approximately $5 per subscriber per month. By comparison, The Big Ten Network, outside of its natural footprint, reportedly gets a dime per subscriber.

Any kind of programming that increases those sub fees is attractive to a network. In the new deal, Fox is dumping a lot of Big 12 content on FX. The network has been the home of several successful drama series, but sports are seen as a way to make it more valuable. Let's say FX gets 15 cents per month in sub fees. Let's also say that the addition of Big 12 sports bumps that fee up to 22 cents. That's seven cents X 100 million FX households which equals $7 million per month. Multiply that by 12 months and you've got an extra $84 million per year on FX alone.

Cable operators are willing to charge it because viewers demand it. That's why niche networks like the Golf Channel, Comedy Central and Nat Geo are successful. Cable TV is able to reach specific audiences -- and their money.


Televised sports are a leader in technology: Sports have pushed along the development of both cell phone technology as well as HD and 3D.

A friend was getting a game on his phone recently. He was driving so he couldn't watch it, but he turned up the telecast so he could hear it. Without new technology that wouldn't be possible. 

The next wave is Internet TV. Delany saw that wave coming approximately 13 years ago. That's a big reason he wanted to create the Big Ten Network. So-called "convergence" technology will allow us to watch from our computers, our phones, our IPads as well as enhanced televisions. Imagine having a spreadsheet for work open in one corner of your TV and the NCAA tournament in other portion of the screen. 

Some of this is already hitting the market -- MLB.TV, ESPN3, March Madness On Demand. It's coming and we're all going to want it. That's how conferences will make and their rights holders will pay even more money. 


 
 
 
 
The views expressed in this blog are solely those of the author and do not reflect the views of CBS Sports or CBSSports.com